This Luxury Brand is Slowly Making a Comeback

Checking in on the fundamentals of TPR stock reveals a potential buying opportunity

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Tapestry, Inc. (NYSE:TPR) is the parent company of many luxury fashion companies such as Coach, Kate Spade, and Stuart Weitzman. Surprisingly, Tapestry stock is one of the few stocks that didn’t experience as rapid of recovery as its peers after the market crashed in March of this year. However, since hitting a 52-week low in March of this year, the company has increased its share price by 83.4%. Yesterday TPR stock had one of its best days, with a single-day increase of 4.48%. Most signs seem to point toward continued recovery of TPR stock. However, it's inevitable that the company's volatile history will give investors pause.

Tapestry has a market cap of $5.18 billion and a current book value of $8.24 per share. The company's price/book value is 1.98, a forward price-earnings ratio of 8.79 and a trailing price-earnings ratio of 10.84. Tapestry has $1.43 billion in total cash with $4.49 billion in debt. Its balance sheet shows $7.92 billion in total assets and $5.65 billion in total liabilities, with a total equity of approximately $2.28 billion.

Tapestry has beat analyst expectations in three of its last four earnings reports. In this most recent quarter, the company beat expectation by a margin of $0.31. The company reported an earnings per share (EPS) of -$0.25 instead of the expected -$0.56. Next quarter, Tapestry is expected to report a significant EPS increase of $0.19. The company currently has a trailing twelve-month EPS of -$2.34.

Revenue growth has been consistent every year for the past four years, with this year standing as the only exception. Tapestry's earnings from the most recent quarter are 50% compared to the fourth quarter of 2019. While the company has reduced expenses significantly since the beginning of the pandemic, it has simply not been enough to outweigh the revenue loss. Ultimately, Tapestry has not been bottom-line profitable for the past two quarters. This means that Tapestry will break its streak of consistently producing a profitable net income annually by the conclusion of 2020.

TPR stock is currently down approximately 40% from its 52-week high of $30.40. Right now, the company's top priority must remain focused completely on returning to profitability during the current quarter. At the moment the company’s main task will be returning to profitability in the current quarter. As one may assume that frequent consumers of luxury products are probably in the upper-middle class making it a fairly loyal consumer base. The average buyers of Kate Spade, Coach, and Stuart Weitzman’s luxury products are the least likely to have been economically affected by the damage caused during the coronavirus shutdowns and pandemic. The upper-middle class is less likely to feel any lasting impact from the high unemployment rate most citizens of the U.S. are experiencing.

Overall, Tapestry is nicely poised to return to profitability. Investors have reason to be optimistic the sooner that "life returns to normal" in the coming months, and that consumers will be more likely to buy luxury products for seasonal gatherings and social events. Ultimately, Tapestry stock should return to its previous highs over the next 12 months.


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